US Airways 2006 Annual Report Download - page 74

Table of Contents
Pensions and Other Postretirement Benefits
Prior to the merger, America West Holdings had no obligations for defined benefit or other postretirement benefit plans. As a result
of the merger, we had defined benefit plans with benefit obligations of $59 million and plan assets valued at $45 million and other
postretirement benefit obligations of $215 million as of December 31, 2006.
The obligations for our pension plans and postretirement benefit obligations are calculated based on several long-term assumptions,
including discount rates for employee benefit liabilities, rate of return on plan assets, expected annual rates for salary increases for
employee participants in the case of pension plans, and expected annual increases in the cost of medical and other health care costs in the
case of other postretirement benefit obligations. These long-term assumptions are subject to revision based on changes in interest rates,
financial market conditions, expected versus actual return on plan assets, participant mortality rates and other actuarial assumptions,
including future rates of salary increases, benefit formulas and levels, and rates of increase in the costs of benefits. Changes in
assumptions, if significant, can materially affect the amount of annual net periodic benefit costs recognized in our results of operations
from one year to the next, the liabilities for the pension plans and postretirement benefit plans.
US Airways' pension plan terminations: In January 2005 and in connection with the second bankruptcy, the Bankruptcy Court
approved the termination of US Airways' three defined pension benefit plans, and the PBGC was appointed trustee of each of the three
plans on February 1, 2005. These plans had aggregate benefit obligations of $2.71 billion and aggregate plan assets of $1.76 billion as of
the plans' termination dates. See also Note 6(a) to US Airways' notes to financial statements included in Item 8C of this report for
additional information about these terminated plans.
US Airways' postretirement benefit obligations: During hearings in late 2004 and January 2005, the Bankruptcy Court approved
various settlement agreements between US Airways and its unions, and between US Airways and the court-appointed Section 1114
Committee (representing retirees not represented by the unions) to begin the significant curtailments of postretirement benefits. Effective
March 1, 2005, those benefits were significantly reduced. US Airways re-measured its postretirement benefit obligation based on the new
terms, which resulted in a reduction in the postretirement benefit obligation of approximately $1.1 billion and a curtailment gain of
$183 million. Since the remeasurement and reduction of the postretirement benefit obligation created a significant unrecognized prior
service gain, US Airways recognized net periodic other postretirement benefit income until the time of the September 27, 2005
emergence from bankruptcy. In accordance with SOP 90-7, US Airways revalued its postretirement benefit obligation on emergence, and
adjusted its liability to $229 million, a reduction of $1.25 billion.
In December 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the "Medicare Prescription Drug
Act") became law in the United States. The Medicare Prescription Drug Act introduces a prescription drug benefit under Medicare as
well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least actuarially equivalent to the
Medicare benefit. US Airways elected to recognize the effects of the Medicare Prescription Drug Act in the quarter ended June 30, 2004,
as permitted by FASB Staff Position FAS 106-2, "Accounting and Disclosure Requirements Related to the Medicare Prescription Drug,
Improvement and Modernization Act of 2003." The recognition of this subsidy resulted in a reduction in expense of $20 million for the
year ended December 31, 2004, and a $198 million actuarial gain that was subject to amortization, based over the remaining period to
expected retirement. Significant assumptions included in the re-measurement of the accumulated postretirement benefit obligation were a
6.25% discount rate and a reduction in retiree participation in the company-sponsored plan, as certain defined drug benefit caps make the
plan more costly to retirees than Medicare.
The assumed health care cost trend rates are 10% in 2007 and 9% in 2008, decreasing to 5.5% in 2012 and thereafter. The assumed
health care cost trend rates have a significant effect on amounts reported for retiree health care plans. See also Note 8(a) to US Airways
Group's notes to consolidated financial statements included in Item 8A of this report.
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